The Sixers' Salary Cap and Amare Stoudemire

It's well known that the Philadelphia 76ers are severely underutilizing the annual allotted cap space for this upcoming 2014/15 season. There are many ways to use that excess cap room. One of those possibilities revolves around the former All-NBA now turned contract albatross Amare Stoudemire. From a pure financial standpoint, an Amare trade deadline deal would be awesome for the Sixers. Here's why.

According to Larry Coon and his extensive NBA Salary Cap FAQ, there are two pieces of key information that make such a trade very beneficial for both the Sixers and Knicks.

1. Exactly what is included when computing total team salaries?

...The full season salary of any players the team acquires in midseason trades...

What does this mean for the Sixers??

Currently, Sixers' salary obligations are at ~$35.53mm and need to reach the $56.76mm floor, a $21.23mm gap. There is no penalty for not meeting the salary floor except having to distribute the difference amongst the currently rostered players. That end-of-season "bonus" is real money coming out of the owners' pockets.

However, they would save a lot of real $$ by soaking up Amare's cap hit at the last moment before the trade deadline. Due to the prorated salary, they’d pay ~33% of his annual $23.4mm salary, which ends up being only $7.72mm, to put his entire 2014/15 salary on their books. Basically, they pay $7.72mm for $23.41mm cap value, that’s $15.69mm savings. BUT the Sixers don’t need the entire $23.41mm to get to the cap floor.

Because Amare’s contract is so excessive, it would actually put the Sixers $2.18mm over the floor. Considering that, the Sixers essentially get $13.51mm savings instead of the pure $15.69mm.

With the effective $13.51mm savings, the Sixers could simply blow their entire annual trade cash limit on draft picks, which is $3.3mm for 2014/15. They could maybe buy a 1st rounder from a cash strapped, playoff team, like Phoenix back in the day, who infamously sold the 2006 #21 overall that became Rondo. It’s unlikely anyone uncovers another Rondo-esque value at #21, but I think the market is there for buy/selling late 1st round draft picks, which is what Hinkie would get for using cap space anyways. Anyone clamoring about the lack of "salary dump" utilization for the Sixers' cap space is underestimating the value of $13.51mm that comes from a potential Stoudemire deal.

2. What is the "luxury tax?" Why does it exist? How is it determined? Who pays it?

...When determining the amount of tax a team owes, the league uses its team salary on the date of its last regular season game (i.e., if a player is traded away before the end of the season, then none of his salary is taxed)...

What does this mean for the Knicks??

The benefits are considerably more obvious for the Knicks. Their 2014/15 salary commitments are currently sitting at ~$88.50mm, which is well above the $76.8mm tax level. The Knicks are already multi-year luxury tax offenders and another season of luxury tax would trigger the "repeated" offender penalties for being over in 3 of the 4 most recent years. This puts them in the higher penalty rate bracket. If their salary obligations were to hold steady, it would be $11.7mm above the luxury line. With the new, higher incremental tax rate, they are penalized $29.25mm.

Amount over tax threshold Tax levied on Knicks
$1.00 - $4.99mm $12.5mm
$5mm - $9.99mm $13.75mm
$10mm - $11.70mm $5.95mm
TOTAL $29.25mm

By trading away Amare, the Knicks would immediately dip below the luxury tax, plunging to $65.09mm in commitments. They would avoid the $29.25mm luxury tax PLUS save $7.72mm on ditching Amare's prorated salary. Assuming they don't absorb any incoming Sixers' contracts, that's $36.97mm savings!! Even if the Knicks don't urgently need the money, it's essentially $37mm that they could use on ANYTHING else!!

Both teams have real monetary value to gain from this deal, and as they always say, sports is a business, which makes it hard to leave $13.5mm and $37mm on the table.

© 2015